New Zealand's economic recovery has passed its peak and the Reserve Bank should delay any further interest rate hikes until 2016, according to the NZ Institute of Economic Research.
In its latest Quarterly Predictions report, NZIER said the pace of economic growth was slowing, and expected it to ease from 3.5% this year to 2.7% next year.
Rising interest rates were starting to bite and that was showing up in falling house prices and waning economic confidence indicators.
However a more gradual recovery would continue, NZIER said.
"While some parts of the economy are easing, there is also an underlying and gradual recovery underway.
"Spending and investment behaviour are gradually returning to normal but it has not been accompanied by households and businesses gorging on more debt, as seen in previous cycles.
"That makes this recovery more sustainable.
"Hiring is improving and retail spending is back to pre-recession levels.
"To retailers' relief, the seven year post-GFC famine has ended."
But NZIER warned that the good news was tinged with caution.
70% of new jobs in Auckland
While hiring was improving, 70% of the new jobs created since the pre-recession highs had been in Auckland and 20% were in Canterbury, leaving 10% spread thinly around the rest of the country.
While job creation had surged in sectors like health and professional services, other sectors such as manufacturing were shedding workers.
"The rather lumpy and wobbly recovery, both in terms of speed and composition, means that this recovery is still elusive to many industries and regions," NZIER said.
"This in part explains why inflation is still subdued and is likely to remain that way for some time."
Those trends suggested the Reserve Bank (RBNZ) should not raise interest rates again until 2016, NZIER said.
"The RBNZ has paused to assess and should not raise interest rates again until there is convincing evidence of strong and sustained economic growth and rising inflation to well over 2.5%.
'We do not see that happening until early 2016."
6 Comments
The RBNZ is probably one of the most successful central banks in the world. Its unspectacular yet effective mix of LVR restrictions and a few rate hikes has restored stability in the real estate market without harming the rest of the economy.
Not sure what the point of the NZIER is to advise the RBNZ on interest rate policy for the next 18 months when financial and political developments around the globe are so dynamic that even calling the next six months is a challenge. But it is a story, I guess.
I'm not sure they have done either of the claims you make.
Housing has slowed and may well have done so anyway. I do like LVR's and CFR though as they are a good addition to just using OCR.
Maybe you should check the number of exporting companies (and service companies that depend on them) that are closing or laying off staff before saying they haven't harmed the rest of the economy. They have been hammered by the over valued NZD which is a big side effect of the high OCR compared to other nations.
have been of this thinking for a while myself. Most countries (US, EP) err on the side of caution, with the fear of deflation being greater than the fear of inflation, as once people stop spending (eg JP) it can be almost impossible to turn around. RBNZ seem a bit odd, likely due to levels of private debt and housing risks, in their keen-ness to hike dispite unproven inflation. A long pause is in store, likely to see other countries (UK even US) start to hike before RBNZ lifts again.
Deflation? Inflation pressure off. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11314973
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